Pension freedom ‘clarity needed’

The Treasury should issue clarification on the implications of pension freedoms for the provision of debt advice, according to the Money Advice Trust, the charity that runs National Debtline.

In its response to HM Treasury’s consultation on pension transfers and early exit charges, the Trust warned that an ‘unclear boundary’ between regulated financial advice and debt advice could leave many people in financial difficulty stranded.

While anyone approaching retirement is able to access general guidance through Pension Wise, many people in debt are not be able to then afford regulated advice from an IFA when it comes to choosing pension products. In addition, in some cases IFAs do not provide advice if a pension pot is worth less than a certain amount, which the Trust fears is leaving some struggling consumers with small pension pots at a disadvantage.

In these situations the individual concerned is likely to be referred back to the debt advice sector, which is not able to provide advice on pension products.

The charity is also concerned that a “referrals loop” could mean that consumers who are in financial difficulty and are unable to pay for advice from an IFA are bounced back and forth between debt advice providers and Pension Wise, without any way of accessing the regulated advice they need to choose the best product for their circumstances.

The issue has been highlighted as the Treasury also begins its consultations on the Financial Advice Market Review and public financial guidance.

“We are pleased that our earlier concerns, over the risk of pressure on people approaching the age of 55 to use their pension pots to clear their debts, are now being addressed through a Financial Conduct Authority consultation.

“However, significant questions remain over the impact of pension freedoms on people with debt problems. In particular, there is a real risk that those in debt – especially if they have small pension pots – are left unable to access the regulated advice they need to choose the best pensions product for them.

“The development of Pension Wise has been a positive step, but beyond general guidance, we need to make sure that everyone understands the boundaries between regulated advice and debt advice. We would welcome clear guidance on how the debt advice sector should advise clients approaching 55, and how the Treasury plans to ensure that access to product-related pensions advice is universal.”